Callinan Letter to Kryglik – Cash Loans Must Be Legally Valid Under State Law

July 18, 2011

Paul A. Kryglik, Director
Office of Regulations
Social Security Administration
6401 Security Blvd
Baltimore, MD 21235

Re: Program Operations Manual System SI 1120.220, cash loans

Dear Director Kryglik:

I am requesting a ruling from your office on an issue involving Program Operations Manual System (POMS) SI 1120.220, cash loans, with respect to a conflict between the POMS and an opinion of the United States Court of Appeals for the Third Circuit. In two separate opinions,* the Third Circuit has made conflicting rulings with regard to whether or not SI 1120.220 contains a loan-purpose requirement.

It is my position that an informal, negotiable cash loan must be bona fide to be legally valid under state law and made in good faith. SI 1120.220B.3 (defining “bona fide agreement’). In order to be a bona fide informal loan, the loan must meet the five criteria of SI 1120.220D.1. to 5. If the loan meets those five criteria, the loan is a “bona fide agreement” and is legally valid under state law and made in good faith.

In Sable I, the Third Circuit rejected the notion that a loan must have a loan-purpose in order to be a bona fide loan and supported my position stated above: “Contrary to the Department’s argument, the District Court will not need to determine whether the transactions had a “loan purpose” because that requirement is not contained in the statute, regulations, or POMS.” Sable v. Velez, 2010 WL 2929918 * 3 fn. 5.

In Sable II, a different panel of the Third Circuit held that SI 1120.220 contained a loan-purpose requirement: “We agree with the District Court that this assumption does not apply here as the facts presented provide `evidence to the contrary’—namely, that the notes may have been entered into with the purpose of attaining Medicaid eligibility, not to make loans.” Sable v. Velez, 2011 WL 2689016 * 3.

Since a federal appeals court has interpreted the same POMS section in disparate ways, I believe it is incumbent upon the Administration to rule on this issue so that individuals applying for Supplemental Security Income and those administering the program can be assured of the program’s proper administration.

If you have any questions, please feel free to contact me.

Respectfully submitted,

John W. Callinan

* The two opinions are cited as follows: Sable v. Velez, 2010 WL 2929918 * 2 (3d Cir. 2010), and Sable v. Velez, 2011 WL 2689016 (3d Cir. 2011). The 2010 opinion will be referred to as “Sable I” and the 2011 opinion will be referred to as “Sable II.”